Part buy, part rent shared-ownership schemes are now a mainstream housing option for first-time buyers who cannot afford to purchase a property outright. Previously, shared ownership was restricted to key workers and other groups but now, first-time buyers earning up to £60,000 qualify.
September 2011 sees the launch of an alternative "shared-equity" initiative called FirstBuy. Backed by government and available through major private house-builders, this gives buyers 20 per cent of a new-build property's value in the form of an interest-free loan.
Some local authorities now also offer shared ownership. Islington council is selling studio and one-bedroom flats to singles earning at least £24,000 a year. Visit islington.gov.uk.
As well as being able to get on the ladder for a lower price, buyers may not have to put down a deposit, or at least only a small one.
Normally, the minimum equity share is 25 per cent (of the full open-market price). A fixed-interest discounted rent is paid on the remaining amount, meaning the combined cost is usually less than a full monthly mortgage repayment. Because the amount being borrowed is only a small proportion of the property's value it is usually easier to raise a mortgage.
Housing associations have links with mortgage lenders who specialise in shared ownership, so getting a loan should not be a problem for those with sufficient income. Similarly, specialist solicitors can be recommended. About £500 is the typical legal fee. Islington council recommends that applicants have at leave £4,000 in savings.
Staircase to 100 per cent ownership
Later on, new owners can purchase additional shares - known as "staircasing" - until they reach full ownership. This is useful for those whose financial situation is likely to improve.
Many buyers are content to remain as part-owners, while others have a clear strategy and timetable to become an outright owner. The amount paid will be linked to the prevailing market value, so it is cheaper to staircase when property prices are lower. Some part-owners wait for a market lull to take advantage of lower values.
According to Metropolitan Home Ownership, which together with London & Quadrant (L&Q) is the main agent for shared ownership in London, most people buy 50 per cent at the outset and then staircase to 100 per cent ownership in one go.
New to the market
A crop of brand-new shared-ownership homes is coming on stream next month. Autumn launches include Muro Court on the Borough/Waterloo border in SE1. Prices start at £275,000 (£68,750 for the minimum 25 per cent share). Minimum savings required are £9,750. Contact L&Q on 0844 4060 9800 or visit lqgroup.org.uk/sales-andrentals.
Designer apartments in gated landscaped grounds are for sale on the site of a former college on Putney Hill, close to the river front and the high street. Prices start at £82,500 for a 25 per cent share. Call 0800 7832159 or email (newhomes@a2Dominion.co.uk). Notting Hill Housing is selling homes at The Terrace, Hackney Downs, and at The Meadows, a 212-home scheme on the edge of Mitcham Common. Prices from £84,000 for a 40 per cent share.
At High Point Village on the banks of the Grand Union Canal, Hillingdon, a one-bedroom flat costs from £50,250, based on a 30 per cent share of the full market value. Call 020 8357 4444 or visit nottinghillhousing.org.uk
Fabrik is a redevelopment of a derelict warehouse at Coldharbour Lane, Brixton. An off-site Swedish construction system has been used, resulting in energy-efficient, triple-glazed homes with underfloor heating. There are on-site allotments. Prices from £182,000 (£45,500 for the minimum 25 per cent share). Visit nottinghillhousing.org.uk/fabrik.
Barratt has announced FirstBuy homes at three London schemes including New South Quarter in Croydon, a 13-acre "urban village" on a former gas works. Apartment blocks up to nine storeys high cluster around courtyards and landscaped gardens. A concreted-over section of the River Wandle crosses the site, while an adjacent park has been upgraded. A new tramline runs to the development and connects with Croydon's two stations, where journeys to London Bridge and Victoria take from 13 minutes.
Prices start at £161,995, so FirstBuy purchasers need to put down £8,000. Call 020 8688 0688.
Raising the finance
FirstBuy will help buyers overcome the "deposit hurdle" caused by lenders restricting mortgages to 75 per cent of a property's value, as they will have to contribute only five per cent.
Halifax, Nationwide and Barclays have been chosen as FirstBuy lenders, so it makes sense to approach these for a mortgage. Top-up loans will be interest-free for the first five years, rising to 1.75 per cent in the sixth year and then one per cent above the retail price index. The loan can be paid back at any time or deducted when the property is sold. About 1,000 affordable new homes in London are becoming available with the first £20 million tranche of government funds.
'Now I'm paying less than when I was renting'
Shared-equity deals are available in commuter towns. Lucie Bennon, 24, took advantage of an "Easy Start" incentive offered by developer Linden Homes to buy a one-bedroom flat at Watercolour in Redhill.
The deal allows buyers to defer up to 25 per cent of the price. Lucie paid £162,500, putting down a 10 per cent deposit (£16,250), while Linden contributed another 10 per cent, allowing Lucie, a customer relations manager, to take out an 80 per cent mortgage. "I'm paying £680 all-in a month, that's less than when I was renting in Epsom," she says.